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Hyman Minsky -- New Phase Change??


JEast
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Economist Hyman Minsky in emphasizing the relationship between finance and business, identified the progression thru at least five (5) distinct stages beginning with – Merchant  Capitalism (1607-1813), Industrial Capitalism  (1813-1890), Banker Capitalism (1890-1933), Managerial Capitalism (1933-1982), and Money-Manager Capitalism (1982-present).  If I can be so bold, I say that we have entered a new stage. 

 

Never before have central banks scratched each other’s backs to such an extent as they have presently, and continue to do so. Take the U.S.’s own FED and what they have done so far.  One example will suffice – the central bank of the US, supported by the US government and its constituents has been adding liquidity to other government’s central banks.  To do this, the FED is/was using a mostly obscure mechanism called ‘temporary U.S. dollar liquidity swap arrangement.’  As I understand the charter of the FED, bailing out foreign banks surely was not defined as part of the FED’s objective and probably is illegal and reason lawyers use the word temporary for wiggle room. Of course, laws flow with the times as water under the bridge and with the current mores of society as a whole.

 

Nevertheless, given that the genie is now out of the bottle now, I suspect that we are in a phase change (think of ice to water) where the Money-Manager Capitalism has changed to Global Central Bank Capitalism, or a type of crony capitalism.  Much of the world has already been on this system and is not frowned upon as they just call it ‘business.’ Reference: Jeffrey Towson What Would Ben Graham Do Now?: A New Value Investing Playbook for a Global Age

 

Many today complain that if the genie is indeed put back into the bottle then the markets will crash or at least have a setback.  How many market participants do not believe this?  The genie is indeed free and only a very clever trick will get him/her back into the bottle of times of old.  In other words, the likelihood of it happening is very slim.

 

What should one do?  Still trying to figure it out myself as I am very micro with a small (m) meaning very company specific.  Overall I trying to not fight the last war with the recognition that a new war is at front and center presently.  One possibility is to buy the dips as big genie will support you and preferably large cap value when you can as alpha should pull you along.

 

 

Cheers

JEast

 

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It will be interesting to see how the marketplace reacts when there is a large scale decline WHILE QE is in place. I assume it will throw most for a loop, as this possibility is not currently part of the majority's worldview right now.

 

I'm really not entirely sure how the Fed's balance sheet expansion makes its way into stocks....from FYE 2008 to FYE 2012, the Fed's portfolio of securities held outright increased by approximately $2.5T, yet at the same time the total credit market expanded by over $3T. How is there possibly a "rebalancing effect" when the stock of financial assets has remained the same??!!

 

Purely psychological. Equity market to GDP now back to 2007 levels - I'm sure this time is different...

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Everyone talks about how when QE is shut off the markets will drop. If everyone knows this, won't that stop it from being too impactful? The reason 2007 was so bad was because 99% of people didn't see the mortgage crisis or at least how that would play out (even Buffett).

 

The reason 2000 was so bad was because prices were so high and people  knew" that the market wouldn't drop off. This was true for most investors - except of the value variety. You could say the same thing about the bull market in the 1960s.

 

Anyone know of a time that the market dropped tremendously when everyone knew it would happen? Maybe 1987 (too young to remember much there). It reminds me a bit of how the municipal market was going to blow up and everyone "knew" it a couple years ago. 

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